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Informist, Friday, Jul 19, 2024

By Alina Geogy

MUMBAI – Investors will remain cautious next week ahead of the full Budget on Tuesday as they wait to see how the government will be able to continue its focus on capital expenditure and announce new measures to boost consumption while being fiscally prudent, analysts said. Stock-specific movements will continue as major companies announce their June quarter earnings.

The three key aspects that are being eyed are fiscal deficit, capital expenditure and populistic measures, Vinit Bolinjkar, head of research at Ventura Securities, said. Investors are waiting to see how the government will do the "trapeze act" between these rather conflicting aspects and meet market expectations, Bolinjkar said.

Today, there was across-the-board selling in the market after several days of an aggressive bull run amid frothy valuations. The market may turn volatile without any trend on Monday, Bolinjkar said. The India VIX, the volatility gauge of the market, ended at a five-week high of 14.8250 points today, up for the fourth consecutive day, hinting at some caution.

A crucial support level for the Nifty 50 is seen at 24500 points, and next support at 24400 points. The resistance is pegged at 24700-24750 points. Today, the Nifty 50 closed 1.1% lower at 24530.90 points and the Sensex closed 0.9% lower at 80604.65 points.  

Expectations of populist measures are likely to drive buyers towards consumption-driven sectors such as retail and fast-moving consumer goods, analysts said. An increase in allocation towards schemes such as Kisan Samman Nidhi can boost the rural economy, which is a positive for these sectors. "For the middle class, we expect an increase in the tax exemption limit, while for the rural or farm sector, we foresee an increase in transfers under the PM Kisan Scheme," Nirmal Bang Institutional Equities, said in a report on Monday. "We see the possibility of a consumption push up to 0.4% of GDP," the brokerage said.

Capital expenditure-linked sectors, such as defence, railways, real estate and housing, infrastructure, and energy sectors, will also be in focus as the government is likely to keep its focus on capital expenditure to crowd in private investment. The market is also expecting some more incentives for affordable housing in the shape of higher allocation or interest subsidies.

Defence stocks are expected to gain if there are favourable announcements for the sector. These stocks have been outperforming recently primarily due to "consistent demand, government backing, and long-term contracts", Mehta Equities said in a report. Further, announcements related to indigenisation will also be awaited.

The fifth 'positive indigenisation list' released by the government also indicates their focus on boosting indigenisation in the defence sector and minimising imports of the components, Harshit Kapadia, research analyst at Elara Capital, said. Earlier this week, the defence ministry released a list of 346 items which will only be procured from the defence public sector undertakings after specific timelines. Hindustan Aeronautics, Bharat Electronics, Bharat Dynamics, BEML, and Mazagon Dock Shipbuilders are among the defence public sector undertakings mentioned in the list.

The government is focussing on research and development and investing in innovation, Kapadia said. It is also keen on promoting the private sector due to faster innovation and execution, he said. The allocations for modernisation and development of the Indian Railways will also be keenly watched. Railway stocks have gained significantly on expectations of higher budgetary allocation to the sector.

Investors will react to Apr-Jun earnings of JSW Steel, which missed Street estimates on net profit. They will also react to the quarterly earnings of Reliance Industries, due today. 

Two major private banks, HDFC Bank and Kotak Bank, are due to announce results for the quarter on Saturday. HDFC Bank's net profit for Apr-Jun is likely to fall on a sequential basis due to a drop in gross advances during the quarter. Kotak Mahindra Bank's net profit may also be weighed down by a fall in net interest margin and high operational expenditure.
 

Valuations of banking stocks are "definitely more comfortable" compared to their historical valuations, according to Akshay Badlani, research analyst at HDFC Institutional Research. But, overall, the sector needs a re-rating, and the return on investments of banks, which are under pressure, needs to be sustained, he said. Mid-sized banks are fairly valued, even though some may face competition from peers, he said.

Edited by Saji George Titus

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